Residential Property

Residential Property 

 

We look for lower aggregate profit both YoY and QoQ in 3Q15 on lower revenue recognition as buyers delayed transfers in hopes of getting in on the government’s property incentives. In our coverage, only LPN and SIRI will report profit growth YoY and QoQ thanks to higher condo deed transfers; profit at LH and PS will fall YoY and QoQ. Meeting our 3Q15 would bring 9M15 profit to Bt20.4bn, a slip of 3% YoY, and equivalent to 66% of our forecast and 69% of consensus. We still expect 4Q15 to be this year’s best. Top picks are unchanged – LPN and PS. 

 

3Q15F poor YoY and QoQ. We look for the seven developers in our coverage to report a fall of 14% YoY and 6% QoQ in aggregate net profit to Bt7.4bn. This is in part due to the delay by clients wishing to get in on possible incentives - which were announced on October 13 and took effect on October 29. We estimate 9M15 net profit at Bt20.4bn, a slip of 3% YoY and equal to 66% of our full year forecast and 69% of consensus. 

 

Best performers – LPN and SIRI. LPN and SIRI, for the second quarter, exhibit strong earnings growth both YoY and QoQ, backed by higher condo deed transfers. We estimate LPN’s net profit at Bt992mn(+77% YoY and +21% QoQ), its highest for the year, thanks to smooth transfers for Lumpini Park Rattanathibet-ngamwongwan, Lumpini Township Rangsit Klong 1 and Lumpini Park Rama 9-Ratchada. SIRI’s profit growth QoQ comes from a better gross margin, which rose 320bps from a lower portion of promotional sales. This more than made up for the absence of the gain on land sales and reversal of decreasing project value seen in the prior quarter. SIRI’s YoY growth comes from top line growth and economies of scale. 

 

Worst performers – LH and PS. LH’s net profit is anticipated to drop by 11% YoY to Bt1.5bn on fewer title deed transfers and weaker gross margin; profit will fall 9% QoQ from the absence of last quarter’s one-time gain of Bt215mn from sale of assets. For PS, we estimate a 16% YoY fall to Bt1.5bn due to a weaker gross margin, and a 29% QoQ drop due to lower revenue that lowered economies of scale.   

 

4Q15 outlook best. We look for aggregate net profit growth of 7% YoY and 43% QoQ to Bt10.7bn in 4Q15, shoving it into first place for the year. Transfers should be smooth in 4Q15-1Q16 after the property incentives took effect on October 29. LH and SPALI will show the strongest profit growth QoQ in 4Q15. LH will see operational improvement from more new launches and strong low-rise presales. We also estimate a gain of ~Bt1.2bn from the planned spin-off of Grande Centre Point Hotel Terminal 21 to a REIT (LHHOTEL). SPALI is looking at a doubling in profit QoQ to ~Bt1.7bn in 4Q15, fully secured by current backlog. QH is unlikely to meet market expectations as our estimate of 9M15 profit accounts for only 52% of SCBS and 56% of consensus.   

 

Sector picks: LPN and PS as prime beneficiaries of stimulus, good earnings upside risk (19-28%) and intact growth outlook this year and next.